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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The economic scenario in Brazil deteriorated on Wednesday as Moody’s downgraded the country’s sovereign risk to junk status and changed the country’s outlook to negative. Moody’s was the last of the three large risk-rating agencies to lower Brazil’s credit ratings.

Brazil, Central Bank,Head of the Economic Department at Brazil’s Central Bank, Tulio Maciel, believes the credit impact of the latest downgrade should not be large
Head of the Economic Department at Brazil’s Central Bank, Tulio Maciel, believes the credit impact of the latest downgrade should not be large, photo by Elza Fiuza/Agencia Brasil.

“[Brazil’s] deterioration is expected to continue over the coming three years, given the scale of the shock to the Brazilian economy, the lack of progress made by the government in achieving its fiscal and economic reform objectives and the political dynamics expected to persist over that period,” said the statement released by the agency on Wednesday, February 24th.

According to Moody’s among the main factors to contribute to the downgrade was the prospect of further deterioration in Brazil’s debt, with the government’s debt likely to exceed eighty percent of GDP within three years. “We expect GDP growth to average a negative 0.5 percent over the period 2016-2018.”

Also pressuring the country’s economy is the turbulent political dynamics, which is likely to hinder authorities’ fiscal consolidation efforts and delay structural reforms. “Approval by Congress will be difficult given the government’s limited support in Congress and ongoing political challenges facing the President,” the report concluded.

The agency stated that it now forecasts a slower recovery of the Brazilian economy than previously and risks of further deterioration to Brazil’s credit profile due to possible macroeconomic shocks.

The head of the Economic Department at Brazil’s Central Bank, Tulio Maciel, however, said the credit impact of the latest decision should not be large, since these were already absorbed by the downgrades last year by the other two ratings agencies.

“This will not alter the credit market in Brazil,” Maciel was quoted as saying by Agencia Brasil. According to the Central Bank official the sources for credit offered are domestic and not foreign.

Last week Standard & Poor’s (S&P) lowered its long-term foreign currency sovereign credit rating for the country and changed the country’s outlook to negative.

In September of 2015 S&P was the first agency to withdraw Brazil’s investment grade, followed by Fitch in December.

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3 COMMENTS

  1. Each new economic forecast has been worse than the previous one for the last 12 months at least. I am sure the present forecast is not close still to Brazil’s actual future reality.

  2. Is there a problem in Brazil? Of course there is but we haven’t pinpointed the source and as long we do not bring that to the surface the country will continue to suffer.
    The main reason is not the corruption but the base to corruption.
    And that is EDUCATION. And education mean cheap well funded schooling, access to sources, training in adhering to appointments, learning foreign languages, traveling the world and do researches funded by the governement, dividing the countries resourches to everybody and not make education a high class happy few event. Make education free to everybody, not high school fees and or very expensive books charges, to name a few facts.
    EDUCATION, EDUCATION, EDUCATION should be the Governements slogan and it will sort out all other lesser relevant problems in the next two generations. The problem Brasil is facing is not a short time solveble problem but a long term one.
    We should not look at what may happen tomorrow BUT what should happen in 50 years. But that needs guts to do so as we are trained on short term politics not long term. We pretend to do this for our children but we even don,t care what happens next week. And that policy should change if Brazil ever want to be the top world economy. It has all the resources it needs for that but it has to change it Education.
    Arie de Lint

  3. These people are opportunists and the most successful of them are highly educated. That isn’t resolved by more education. Brazil requires the strengthening of the justice system.

    The funding for the prosecution of politicians needs to be proportional to the problem. The number of ways of appealing and delaying needs to be reduced. The requirement to be tried only by the supreme court must be ended.

    The three tier prison system must be ended: prison, graduate prison, house arrest.

    And more than anything else Brazil needs a Proceeds of Crime Bill that actually removes from criminals their gains.

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